Sebi auctions govt bonds worth $9.34 bn

In signs of imminent revival of overseas interest in government securities, an auction for investment limits in such bonds was over-subscribed on Tuesday by FIIs with bids worth a record $10.4 billion pouring in.

The auction was conducted by capital markets regulator Sebi on the stock exchange platform for FII investment limits in government debt securities worth $9.34 billion (Rs 58,264 core) and it received bids worth $10.4 billion (Rs 64,908 crore).

This is the biggest ever auction for such bonds and exceeds the previous record of Rs 42,022 crore, auctioned two months ago on June 20, and negates the prevailing concerns in markets with regard to foreign investments.

The auction results come in the backdrop of FIIs having turned net sellers for over two and half months now in the debt market after huge net inflows in the first five months.

As per auction details, as many as 40 bids were received and 39 of them were declared successful with allocation of investment limits for government debt securities worth Rs 58,264 crore.

The robust response to Sebi auction comes at a time when concerns are being raised about huge outflows of foreign funds and weakness in domestic markets and the overall economy.

Interestingly, the FII interest has been strong in such auctions for many months now, including in July when they put in bids worth over $4.3 billion in an auction for debt securities worth $3.96 billion.

Prior to that, the auction of Rs 42,022 crore worth bonds was also subscribed almost fully in June, when bids were received for about Rs 39,171 crore. However, FIIs have been pulling out money from overall debt markets in recent months.

Last month alone, they pulled out over Rs 12,000 crore.

The weakness in the Indian currency has been instrumental in overseas investors exiting debt markets as the rising cost of hedging a volatile rupee hurt the yield differential the FIIs work with, according to market experts.

The rupee slumped to a lifetime low of 64.13 (intra-day) against the US dollar on Tuesday.

There has been turmoil in the global markets after the US Federal Reserve said it may taper the $85-billion-a-month bond purchase programme as early as next month and end it next year if the US economic recovery is up to its expectations.

FIIs had been aggressive buyers of bonds in the first five months of 2013 on account of higher yields offered by the government and corporate debt. The debt market witnessed a net inflow of almost Rs 25,000 crore in January-May this year.

To attract foreign capital, the government recently hiked the investment limits for FIIs in government debt to $30 billion, from $25 billion previously.

FIIs need to bid for investment limits in an auction conducted periodically by Sebi as per the available limits, pursuant to which they can invest in the bond market.

The Sebi auction of debt limits for FIIs is conducted at around 20th of every month.